
Originally Posted by
Melonie
^^^ for the record, there really wasn't a choice. The US constitution essentially bars the federal gov't from assuming responsibility for debts owed by individual states. However, throwing the fine print of the Constitution out the window hasn't seemed to be a problem for Obama so far i.e. the GM / Chrysler bailout versus the Constitution's 'takings clause' as it applies to secured GM / Chrysler bondholders.
At any rate, a much more practical issue probably influenced Obama's 'nyet' ... the fact that the federal gov't assuming municipal bond guarantees / originating federally funded loans for the state of California would immediately lead to 43 other states with deep budget deficits forming a line right behind them ! Add this to international financial community speculation that the US federal gov'ts AAA credit rating is already on shaky ground (without liabilities for states' even shakier bonds / loans beginning to appear on the federal balance sheet), and the consequences of existing US federal debt service costs rising by $100 billion + ( along with every other US interest rate rising as a result), and a 'pits of hell' scenario would surely accompany any federally funded California bailout attempt. Obama may be many things, but stupid isn't one of them.
As a result of the federal refusal, California will now be forced to 'pay the piper'. It will be curious to see how the mix of necessary tax increases, social welfare benefit reductions, teacher / police / prison system reductions, 'green' subsidy reductions etc. get laid out ... and how the states taxpayers, unionized gov't employees, 'green' industries, welfare recipients etc. react ! ( hint hint California Prius buyers, your $4000 state tax credit is likely to have just disappeared !)
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